How HR became one of the most powerful C-suite roles

Lisa Stevens took on an exciting new role in 2019: She became chief people officer at Aon, a professional services and management consulting firm with more than 50,000 employees across 120 countries.

It was her first time taking over an HR function, having previously come up through the ranks working for decades in business operations. Little did she know that a global pandemic was about to hit, sending society at large into total upheaval. Soon, she was tasked with figuring out how to transition an entire company to remote work, provide mental health support for employees, and make sure staff didn’t overtax themselves as work and personal time blended.

“We really moved from being 80% operational…into spending 60% of that time, if not more, on strategic initiatives,” she tells Fortune.

Stevens isn’t the only HR leader who has seen their jobs evolve since the COVID pandemic, as workforce and talent issues take on a new urgency for executives. C-suite leaders ranked “failure to attract or retain top talent” as the fourth-biggest risk facing organizations today, according to a recent survey. By comparison, that category didn’t even crack the top 10 in 2019.

HR was once considered a sleepy backwater of the C-suite, a lesser-than role akin to a paper-pushing hall monitor. But a combination of the pandemic, a period of social upheaval, and a tight labor market has coalesced to turn it into a new kind of powerhouse position, with CHROs wielding never-before-seen clout and importance in the C-suite.

“I think there may have been a bias against HR because of the perception that it is a softer field. And I think HR has come a long way in showing that that’s not the case,” Liana Passantino, a senior principal at Gartner’s human resources practice, tells Fortune. “HR and workforce issues have become a greater priority to CEOs, to boards, and to company strategy in recent years.”

How HR became a key player in the C-suite

CHROs weren’t always in the limelight. HR leaders have historically been some of the lowest-paid executives, excluded from the C-suite level, and relegated to focus on nonstrategic issues like payroll, hirings, firings, and benefits.

“Back when I was in HR, I remember I had a (fellow HR) colleague once who used to say, ‘We’re the leaders,’” says Mira Greenland, chief revenue officer at outplacement and career coaching firm INTOO. “Because it was a core cost center. Nobody wants to end up over in HR.”

But those days are over. Jennifer Wilson, who leads Heidrick & Struggles’s global human resources officers practice, says 2020 and 2021 were “record-breaking years” for hiring CHROs, as companies rushed to upgrade their people leaders during COVID and the racial reckoning that followed the murder of George Floyd in the US She says demand hasn’t let up since.

“Every big issue on the CEO’s agenda, basically, is a people issue, and that has made the CHRO role more prominent,” she tells Fortune. “We’ve seen more work than ever for us in that sector.”

CHRO salaries have skyrocketed, and around 13% of HR executives at S&P 1500 companies were among the top five highest-paid C-suite positions at their organizations in 2022, up from 0.5% in 1992. Some CHROs now earn as much as $8 million annually. And many HR leaders are becoming CEOs in their own right, with General Motors chief executive Mary Barra serving as the most famous example of an HR head taking the top job.

“Good companies always highly valued HR and gave them a place at the table. Other companies may be coming to that or are being forced to come to it,” says Andy Gold, CHRO of enterprise shipping firm Pitney Bowes. “HR really does help drive business results.”

Those changes follow a fundamental evolution of the role itself over the past few years. Once considered purely operational, the CHRO role has taken on new strategic responsibilities and expanded within an organization.

“During COVID, many HR leaders became part of cross-functional teams to respond to this evolving situation,” says Passantino. “That has elevated their position and, maybe to some extent, the connections with other functions like finance, real estate, IT, and so on.”

The rise of remote work forced HR departments to figure out how to build connections virtually, quickly followed by navigating bringing workers back into the office without alienating the entire company. DEI initiatives also took center stage, sending companies scrambling to reevaluate what programs they have to champion and support diverse talent. The labor market upheaval over the past few years, often called the Great Resignation, forced organizations to become more competitive than ever with their hiring strategies and put HR on the front line of that battle. And there was also an increased emphasis on employee well-being, as more workers experienced mental health concerns and loneliness. That led to spending money on new benefits, training managers to spot mental health concerns among their employees, and coaching leaders to talk about their own well-being.

“You see more analytics and business strategy being applied,” says Tom Wilson, managing director at Frederickson Partners, an executive search firm. It’s not just that HR is kind of the fun crew, organizing picnics and engagement surveys. They’re doing real, proper business work.”

The emergence of AI technology over the past few years has only propelled the HR function to new heights and solidified its place in the C-suite. CHROs are leveraging technology in more innovative ways and planning how companies can save costs and rethink the workforce of the future. AI wasn’t a topic that HR discussed a few years ago, Steve Patscot, leader of Spencer Stuart’s human resources practice, says. But that’s also changed.

“Not only do you have to think about it as a vehicle for transforming your function, but it’s how it’s transforming your entire workforce and your culture, and the employment implications of that,” he says.

Will CHROs be able to hold onto their new power?

HR is more elite than ever, but it still has a long way to go before it’s considered a permanent key player in the C-suite.

Many CHROs remain dramatically underpaid compared to their C-suite counterparts—a phenomenon likely driven in part by the fact it’s one of the few C-suite roles that are held mostly by women. While S&P 500 COOs were paid $7 million annually on average in 2022, and CFOs made $6 million, HR chiefs earned just $4.2 million, according to an analysis of executive compensation data from Morningstar. And despite making gains in the boardroom, it’s estimated that fewer than 40 HR leaders serve as directors of Fortune 500 companies.

“For a long time, people talked about, ‘HR needs a seat at the table.’ That was the expression for so long,” says Passantino. “You’ve got that seat now. What are you going to do with it? How do you keep it? How do you prevent HR from becoming less important again?”

For CHROs to keep their new status moving forward, they must ensure that their organizations don’t put talent strategy on the back burner again, and Patscot says there are three factors that HR’s continued ascendance depends on to keep going. The first is that CEOs continue to demand more from the function and recognize its importance and value. Secondly, HR leaders must continue to grow, learn new aspects of business, and figure out how to add to the organization in new ways. And third, CHROs must deliver on their promise of an AI transformation. All of this won’t be an easy lift, and many people think HR “hasn’t fulfilled its end of the bargain to be a true strategic partner,” Patscot says.

“If you took a survey of who thinks HR is blowing it away right now, I think the results would be reasonably mixed,” he adds. “Because the expectations are so different and so high from so many constituents.”

The path of the CHRO is also more fraught than other C-suite positions right now, stuck in the middle as CEOs and employees duke it out about return-to-office mandates, employee expectations around pay and benefits, and unionization efforts. As a result, HR faces high expectations from multiple stakeholders and could easily be considered a failure by any one of them.

“Some people continue to have a pretty narrow definition of what HR is and what it should be,” says Patscot. “And that’s, you know, a little disappointing.”